In the economic and financial scenario Italian real estate funds industry continues its growth. This paper aims to investigate the investment policies and portfolio composition choices of Italian real estate funds, analyzing the impact on performance measured through the Sharpe ratio. In literature several studies deal with portfolio composition choices about sectorial and geographical diversification (Lee and Devaney 2007, Gabrielli and Lee 2009, Byrne and Lee 2010) and how these impact on real estate funds performance (Gallo et al. 2000, OíNeal and Page 2000, Morri and Erbanni 2008), which is measured with several RAP indicators such as Sharpe ratio, Treynor ratio, etc (Scholz and Wilkens 2005, Eling 2008). Looking at the Italian market, the theme of real estate vehicles performance has been taken into account from Morri and Lee (2009), Giannotti and Mattarocci (2010). This paper collocates in these studies, but differs from the existing literature since it only focuses on the patrimonial aspects of funds, highlighting the incidence of the components of property and others investments on the fund performance. Therefore, the work adds the residual investment analysis, trying to demonstrate how this latter can influence the performance. The analysis has been carried out on a sample of 20 Italian listed retail funds over the period 2007-2010. By means of a dataset with semiannual data provided by ëReport of Scenari Immobiliari‚í, a pooled OLS and fixed effects panel regression were applied. The results show how real estate portfolio composition choices impact strongly on the fund performance. The Sharpe ratio is influenced by age, fund setup typology and Herfindahl index for property type. In particular, sectorial diversification have a major impact on fund performance than geographical diversification in portfolio composition choices. Furthermore, the study shows how the investment in liquidity affects the fund performance in the investment policies.